COMPANY NEWS

COMPANY NEWS; Alexander Gets Infusion And Hires a New Chief

By MICHAEL QUINT

Published: June 8, 1994

Alexander & Alexander Services Inc., the country's second-largest insurance broker, improved its financial condition yesterday with a $200 million investment from the American International Group.

Alexander also hired Frank G. Zarb, a Wall Street executive, as its new chairman and chief executive.

The announcements were the catalyst for a rebound in Alexander's stock, which rose $1.50, to $17.875, in active trading on the New York Stock Exchange yesterday. Trading in Alexander's stock was suspended on Monday and early yesterday while the company's board completed the transactions.

Clients of Alexander are primarily large corporations whose need for insurance can require policies from dozens or even hundreds of different companies. The company, based in New York, is second behind the Marsh & McLennan Companies, the nation's largest insurance broker. Weak Financial Position

Alexander also advises companies on the increasingly common practice of self-insurance, where companies create their own insurance companies to handle ordinary risks and rely on outside insurers for only the largest risks.

Despite its roster of blue-chip clients, Alexander's own financial position has been weak enough to result in a junk-bond rating of BB- from the Standard & Poor's Corporation. Alexander's earnings from continuing operations were $23.64 million last year, down from $57 million in 1992, and have been hurt by intense competition that has depressed insurance premiums and brokers' fees.

In addition, the company has been hurt in recent years by a series of losses in its employee-benefit consulting business and the property insurance underwriting business it sold several years ago.

The past mistakes and problems with cost-cutting led to the departure earlier this year of its chairman and chief executive, Tinsley H. Irvin.

Mr. Zarb said it was too soon to talk about his plans for the company, but tried to quell rumors that the company would be sold. "We will stay independent -- that is part of our market advantage," he said, adding that independent companies were in the best position to offer "absolutely objective" advice to large corporations. An Investment Banker

Mr. Zarb, who is 59, is an experienced Wall Street executive who was previously vice chairman of Travelers Inc., where he was in charge of the company's Primerica Financial Services division. Earlier in his career Mr. Zarb was the head of Travelers' securities brokerage company, Smith Barney, and was an investment banker with Lazard Freres & Company.

Although the investment by American International -- $200 million of convertible stock that could make it a 21 percent owner of Alexander -- was described by Alexander officials as "passive," with no seat on the board or other business ties, several analysts said American International's reputation as an astute investor should restore some of the luster to Alexander.

Michael A. Smith, an analyst for Lehman Brothers, said in a memorandum to his clients that the investment by American International, which is also based in New York, "could go a long way toward the stabilization of Alexander & Alexander's business." He added that Alexander "has seen erosion of its client base that can be attributed to the company's weakening financial condition."

Other analysts said they expected Alexander would continue its cost-cutting efforts, which have cut its payroll by 21 percent, to 14,200 people.

To further strengthen its finances, Alexander reduced its quarterly common stock dividend to 2.5 cents, from 25 cents, a move that will save it nearly $10 million a quarter.

Photo: Frank G. Zarb, who will become chairman and chief executive of Alexander & Alexander Services. (The New York Times)